Consumers’ confidence in their spending power has grown to its highest point in at least four years as the pressure from living costs continues to fall back and the mood around employment becomes more upbeat, according to a study.

The positive swing in consumer confidence took the overall index in Lloyds Bank’s Spending Power Report to an all-time high level of 154 points in January.

The monthly report, which has been running since early 2011, found that people are spending less on essentials than they were a year ago, with falling gas, electricity and motor fuel costs particularly helping to ease the pressure. But the mood across the UK remains mixed and people’s confidence in their spending power was found to be highest in London and lowest in Northern Ireland.

More than half of the 2,000 people surveyed said that they had cut back on spending since the start of January as they recovered from the impact of Christmas on their budgets.

One in four people used a cheaper supermarket in the quest to rein in their spending, one in five used more voucher codes or discount websites and one in 10 sold more items on auction websites, perhaps offloading unwanted Christmas presents.

Sentiment towards the current situation was the highest the report has ever recorded. The report said that the confidence boost is being driven by several factors, including improving feelings towards the country’s financial situation, employment, inflation and personal financial situations.

Four out of five people said that they had some discretionary income left over after spending on essentials. Among those with some leftover cash, there is a tendency to spend it, with people saying they would typically spend 46 per cent of any money they had left over, put 24 per cent of it in savings and use 14 per cent to pay off debt.

Despite the uplift in mood however, people generally remain cautious about the future. Sentiment towards the future situation fell back slightly in January, and future discretionary incomes are expected to be relatively stable.

Official figures recently showed that inflation fell to its lowest level on record in January amid low oil prices and fierce supermarket competition.

Patrick Foley, chief economist at Lloyds Bank, said: “An easing in price pressures for fuel and utilities and a more positive view of employment conditions have produced an upbeat mood among households at the start of the year. While some caution remains around future income prospects, households should continue to feel better off through 2015.”